Tom Edsall on politics inside and outside of Washington.
For a moment, let’s forget the central debate of our political period
— how much of a role government should play in our lives — and ask a
different question: can government policies counteract inequality in any
meaningful way?
Four political scientists – Adam Bonica of Stanford, Nolan McCarty of
Princeton, Keith T. Poole of the University of Georgia and Howard
Rosenthal of New York University – take this issue head on in
their paper, “Why Hasn’t Democracy Slowed Rising Inequality?” published earlier this year in Journal of Economic Perspectives.
During the past two generations, democratic forms have
coexisted with massive increases in economic inequality in the United
States and many other advanced democracies. Moreover, these new
inequalities have primarily benefited the top 1 percent and even the top
.01 percent. These groups seem sufficiently small that economic
inequality could be held in check by political equality in the form of
“one person, one vote.”
Bonica, McCarty, Poole and Rosenthal argue that politics can be an
effective tool to restore economic fairness — that government can, and
should, correct imbalances the market produces, providing for those who
cannot compete, ensuring opportunity for those who can and blocking
those who would appropriate to themselves what the authors see as an
excessive share of our national prosperity.
The four political scientists offer five “possible reasons why the U.S.
political system has, during the last few decades, failed to
counterbalance rising inequality”:
- An intellectual and ideological shift within both political parties
toward “acceptance of a form of free market capitalism which, among
other characteristics, offers less support for government provision of
transfers, lower marginal tax rates for those with high incomes, and
deregulation of a number of industries. Financial deregulation, in
particular, has been a source of income inequality.”
- “Immigration and low turnout of the poor have combined to make the
distribution of voters more weighted to high incomes than is the
distribution of households. Turnout, of course, can also be influenced
by legal and administrative measures that make it relatively costly for
the poor to vote.
- “Rising real income and wealth has made a larger fraction of the
population less attracted to turning to government for social
insurance.”
- “The rich have been able to use their resources to influence
electoral, legislative, and regulatory processes through campaign
contributions, lobbying, and revolving door employment of politicians
and bureaucrats.”
- “The political process is distorted by institutions like
gerrymandering that reduce the accountability of elected officials to
the majority. Other political institutions, including a bicameral
legislature with a filibuster, combine with political polarization to
create policy gridlock, which in turn inhibits efforts to update social
safety nets and regulatory frameworks in response to changing
conditions.”
The authors produce a number of graphics to support their claims.
Figure 1 shows a positive correlation between the share of income going
to the top 1 percent and the level of polarization between the two
political parties in the House of Representatives.
Figure 1
The Federal Election Commission and the Internal Revenue Service Fig. 1
Figure 2 shows the growing dependence of Democratic candidates on
contributions from donors in the top 1 percent of the income
distribution. These contributions have risen from 5 percent of the money
donated to Democrats in 1980 to 25 percent in 2012:
The Federal Election Commission and the Internal Revenue Service Fig. 2
In the interest of promoting debate, I ran the questions raised by
the Bonica paper — “do democracies have the capacity to remediate
massive increases in economic inequality” — by a number of experts,
including Isabel Sawhill and Gary Burtless of the Brookings Institution;
Andrew Fieldhouse and Benjamin Landy, policy analysts at the Century
Foundation; Sean Reardon, a professor of education and sociology at
Stanford; Austin Nichols of the Urban Institute; Daron Acemoglu, an
economist at M.I.T.; and Leslie McCall, a sociologist at Northwestern.
Let me organize the responses under five topic headings:
To what degree is growing inequality a result of political decisions or of economic and demographic trends?
Fieldhouse contends that Bonica and his colleagues
oversell the relation between public policy and income
inequality – the political sphere influences the playing rules for the
free market, but U.S. income inequality growth is, at the core, being
driven by very strong market forces for much longer than U.S. income
inequality has been in the public discourse.
Looking at the issue from another angle, Acemoglu makes the case that
the authors spend too little time on what he sees as the most important
reason that political solutions are not likely to work: the global
economy has become even more competitive. Capital is internationally
mobile, and corporations and their owners will move to other countries
when faced with what they see as excessive taxes and regulatory burdens:
With the technological changes and the more globalized
economy we live in, the cost of stemming the rise in inequality has also
increased. A cross-country perspective shows this very clearly. Several
European countries, including Germany and Sweden, which have
well-functioning democracies and strong social democratic parties, have
also reformed their labor market and product market institutions,
leading to greater inequality over the last two decades. A cross-country
perspective also indicates that the factors the paper mentions can at
most be a portion of the puzzle.
The rise of inequality in Scandinavian social democracies, according
to Landy, suggests that explanations based on phenomena unique to the
United States, like the disproportionate influence of money in political
campaigns, are inadequate:
Globalization and changes in technology have been a boon
to owners of capital, allowing them to decrease their labor costs, boost
productivity and, in many cases, replace workers’ jobs entirely.
Sawhill also argues that “income inequality is growing for reasons
that have little to do with politics,” including “changes in household
composition, more single parents, like marrying like, and wage
inequality produced by the increased demand for well-educated workers
and the failure of the supply of educated workers to keep pace.”
Would raising marginal tax rates significantly lessen inequality?
I found no consensus on this.
Fieldhouse contends that
tax, transfer, and regulatory policy can and should push
in the right direction, but it would take large political forces to keep
from exacerbating inequality; halting let alone reversing market-based
inequality growth of the past three decades would require policy actions
beyond the conceivably viable.
Fieldhouse notes that politically untenable policies include the
adoption of full-employment monetary and fiscal policies — in other
words, a massive jobs program requiring a large expenditure of tax
dollars is not in the offing.
In contrast, Nichols of the Urban Institute makes the case that
Bonica and his colleagues underestimate “the central importance of
taxes” in fueling inequality — because they fail to recognize how much
cuts in capital gains rates over the past 25 years have enhanced the
wealth of the top 1 percent and especially the top 0.1 percent.
McCall, author of “
The Undeserving Rich:
American Beliefs About Inequality, Opportunity, and Redistribution,”
suggests that liberal interest in raising top rates is a political
miscalculation. She argues that survey data show “the public has never
really been oriented toward fixing inequality through taxing the rich or
especially spending on the poor.” Instead voters want what she calls
“market-based redistribution,” which translates into “good jobs with
fair pay.”
Intellectual capture of political elites and the political and financial power of the affluent.
There was significant agreement among those I surveyed in support of
two key points in the Bonica paper: that leaders in both political
parties have come to accept free market ideology without question and
that the affluent have used their control of money and other resources
to wield excessive power over policy making. Fieldhouse writes that
“political capture by the elites,” particularly with respect to the
“capture” of centrist Democrats by high finance, “played a big role in
financial deregulation, which in turn has greatly exacerbated income
inequality growth.”
Acemoglu asserts that “the role of lobbying by the very wealthy and
large corporations has truly become a huge liability for American
democracy over the last several decades.”
To Reardon, “the current dominant cultural narrative about the market
and efficiency and fairness and equality” is crystal clear: “it goes
something like this: America = fairness/opportunity = individual freedom
= free market.”
Democratic intra-party conflict.
Landy emphasizes
the split within the Democratic Party in the late 1960s
between “traditional,” blue-collar Democrats and the more radicalized
New Left. The Democratic Party’s newfound focus on women’s rights, gay
rights and affirmative action alienated a substantial number of older,
white liberals. The modern-day coalition of social conservatives and the
business community would not be as strong as it is without that schism,
which allowed the Republican Party to breed resentment by racializing
what were formerly working-class economic issues.
Fieldhouse, in turn, maintains that Democrats have “done a better job
promoting ascriptive identity policies and politics than those of
general social welfare in recent decades.”
Lack of confidence in the government.
Nichols, without specifically naming the Democratic Party as the
source of the problem, touches on what might be called the “confidence
gap.”
He contends that “a virtually unprecedented rise in inequality since
1986 could be addressed with higher tax rates. Yet most of the bottom 99
percent does not support dramatically raising taxes on the top 1
percent.” Bonica et al, in Nichols’s view, do not address “the main
reason for that phenomenon — which I suspect is a deep distrust of how
the federal government makes spending decisions.”
•
A paper
by Josh Bivens and Lawrence Mishel of the liberal Economic Policy
Institute, in the same issue of the Journal of Economic Perspectives,
asks if “the increase in the incomes and wages of the top 1 percent over
the last three decades should be interpreted as driven largely by the
creation and/or redistribution of economic rents” or “simply as the
outcome of well-functioning competitive markets rewarding skills or
productivity based on marginal differences.”
Bivens and Mishel define “rent” as income “in excess of what was
needed to induce the person to supply labor and capital,” and they
assert that much of the income of the top 1 percent has little to do
with productive economic activity and could be taxed away without harm
to the economy.
Others writing in the same issue of the journal believe that taxing
or otherwise limiting the wealth of the very rich can harm productivity.
N. Gregory Mankiw, an economist at Harvard who was chairman of the
Council of Economic Advisers in the George W. Bush administration,
writes that
My own reading of the evidence is that most of the very
wealthy get that way by making substantial economic contributions, not
by gaming the system or taking advantage of some market failure or the
political process.
In “
It’s the Market:
The Broad-Based Rise in the Return to Top Talent,” Steven N. Kaplan of
the University of Chicago Booth School of Business, and Joshua Rauh, of
the Stanford Graduate School of Business, argue that talent is unequally
distributed through the population and that this is reflected in the
inequality of rewards. They suggest that
One explanation that has been proposed for rising
inequality is that technical change allows highly talented individuals,
or “superstars,” to manage or perform on a larger scale, applying their
talent to greater pools of resources and reaching larger numbers of
people, thus becoming more productive and higher paid.
Malcolm Gladwell’s
explanation for inequality
in “Outliers: The Story of Success” bridges, to some extent, the
arguments of left and right. He makes the case that it is hard work –
famously, 10,000 hours of hard work – that leads people to gain
abilities that then result in the acquisition of disproportionate
resources. Gladwell notices, however, that a remarkable degree of good
luck is needed to realize the gains from even well-honed skills.
Superstar lawyers and math whizzes and software
entrepreneurs appear at first blush to lie outside ordinary experience.
But they don’t. They are products of history and community, of
opportunity and legacy. Their success is not exceptional or mysterious.
It is grounded in a web of advantages and inheritances, some deserved,
some not, some earned, some just plain lucky – but all critical to
making them who they are.
Gladwell adds this twist to the debate:
It is those who are successful, in other words, who are
most likely to be given the kinds of special opportunities that lead to
further success. It’s the rich who get the biggest tax breaks. It’s the
best students who get the best teaching and most attention. And it’s the
biggest nine- and ten-year-olds who get the most coaching and practice.
Success is the result of what sociologists like to call “accumulative
advantage.”
Inequality appears to liberals and many others to be palpably wrong.
But conservative and liberals often find themselves in agreement that
inequality in and of itself may not be the issue — it’s the way it is
deepening and spreading
and the small size of the group to whom the benefits are accruing that
worries people most. Inequality exists in democracies and
non-democracies alike; it clearly stems from multiple causes. But “the
question for public policy,” as Greg Mankiw puts it, is “what, if
anything, to do about it.”
